August 20th, 2011
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TaxFor the next couple of years, adoptive parents will not be dreading April 15 — Tax Day. Thanks to the Federal Adoption Credit, many people can offset some of the rather high costs associated with adoption.

I knew about the adoption tax credit, but I must admit that I did the bare minimum for fact-finding and figured I (ok, my husband) would trudge through the process and the details after our adoption was finalized. (See, that much I knew; for international adoption, the tax benefits are not realized until after the adoption is final.)

Well, then I did some investigating. And based on the surprises I found, I’m glad I did! Here are the basics:

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  • First, you need to meet the eligibility requirements. Your adoption qualifies if you adopt a child domestically or internationally, who is under the age of 18, and who is not your step-child. Additionally, your adjusted gross income must be less than $182,520 to receive the full credit.
  • The amount of tax credit for which you’ll qualify is the amount of out-of-pocket expense you’ve had. If your employer reimburses you for a portion of your expenses, your total expenses will be reduced. For example, if your adoption costs $20,000 and your employer reimburses you for $10,000, you have $10,000 left in out-of-pocket expenses. Therefore, your tax credit would be up to $10,000.
  • If you adopt a child with special needs, you are entitled to claim the full amount of the available adoption credit, regardless of your out-of-pocket amount.
  • For adoptions finalized in 2011, the tax credit amount is $13,170 (or so, depending on inflation). This amount is an increase over recent years, a change brought about by the recent health care legislation. Additionally, that bill made the tax credit refundable for 2011.

So what didn’t I know about the adoption tax credit? Well, I just assumed the tax credit would go on perpetually. I was wrong. For 2012, the tax credit amount is $12,170 (not a big drop), and it’s not refundable. For 2013, the tax credit is projected to be $5,000 (although adoptions of children with special needs will be credited $6,000). Hmm…not super news for people facing a lengthy adoption process.

Still, the adoption tax credit is the largest credit available to an individual taxpayer. For that, I’m personally grateful. Because of this though, taxpayers will be required to file their taxes manually, rather than electronically. So be sure to save all receipts and cleared checks, as well as supporting documents that prove you did, in fact, adopt.

If you support adoption or appreciate the adoption tax credit, let your congressmen know!

Disclaimer: I am not an accountant; I’m a writer. This information is not intended to be financial advice. Please contact your certified tax professional for questions related to the Federal Adoption Tax Credit.

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2 Responses to “Adoption Tax Credit”

  1. biojen says:

    Where did you get the information about the changes after 2012? I looked at the health care law and couldn’t find anything that said the amount would change. I know you said you aren’t a tax person but could you please provide the source for these numbers? Thanks.

  2. Lindsay H says:

    I gathered this information from several different sites, but mainly irs.gov. Through a search, I found several sites that list the projected credit amount for 2013. However, I also found a few statements regarding bills that are seeking to repeal the “sunset” part of the adoption credit and extend it. With the elections in 2012, anything could happen to the credit.

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